After years of fierce debate, China on Monday began an experiment to tackle one of the major problems blamed for the country's sluggish stockmarkets -- the split share structure.

The split share structure refers to the existence of a large volume of non-tradable state-owned and legal personal shares. Thismeans only about one-third of the shares in domestically listed firms float on the markets. The structure puts public investors ina worse position than the actual controllers in making corporate policies and disposing of the firms' profits and assets.

Trading of shares of the four firms selected for the experimentwas suspended as of Monday. The firms are Tsinghua Tongfang Group,a high-tech firm controlled by Tsinghua University, energy producer Goldbull Energy Co., soft drink bottle maker Zijiang Enterprise, and Sany Heavy Industry Co., an equipment and machinery producer.

Wu Xiaoqiu, director of Finance and Securities Institute of China Renmin University, called the plan "the most important and revolutionary institutional reform of the Chinese securities market since the country's stock markets were created in 1990."

The reform strategy is "correct" and will have a profound impact on the country's stock markets, he said.

Wu has long advocated addressing the issue of the split share structure, which he described as "a black hole sucking up the energy accumulated in the market."

Li Zhenning, board chairman of Shanghai Ruixin Investment Co, said the experiment is China's first attempt to solve the issue. He predicts it will signal the beginning of a turnaround of a yearfor China's stock market after four years' sluggish performance.

The overwhelming majority of investors in the Chinese securities market have been appealing to the central government toput an end to the split share structure to invigorate the country's lackluster share markets.

But Yi Xianrong, an expert with the Institute of Finance of theChinese Academy of Social Sciences, said he has little confidence in the trial program.

"It would be a neutral move if the trial program was executed according to law with improved supervision from the regulator, otherwise it would be a bad news for the markets," he said.

The most important factor in determining the Chinese stockmarket performance is the corporate governance of the Chinesefirms, Yi said.

"There are too many listed firms with poor corporate governance,and their shares are almost worthless," he said.

Zhang Weixing, an expert specializing in split share structure,said there are apparent loopholes regarding the rules issued by the Chinese Securities Regulatory Commission on April 29.

Under the rules, a resolution on ways to put an end to the split share structure of a company requires two third majority of votes of stock holders attending a corporate plenary session, but there is no specific regulation on the turnouts, said Zhang.

This could lead to the manipulation of major corporate decisions by majority stock holders and the failure of the trial program, he warned.

Chinese investors treated the news with indifference. The Composite Stock Index of the Shanghai Stock Exchange, which coversyuan-denominated A shares and foreign-currency B shares, slumped to a new six-year low on Monday after closing at 1130.8 points, down by 2.44 percent.

During the past year, the Chinese government has adopted a number of substantial measures to boost the bearish stockmarket, including the reform of the mechanism for setting the prices of initial public offerings, lifting bans on direct access to the market by insurance firms and social security fund, and reducing taxes on share trading.

But the measures have only provided market indices with short-term boosts. Millions of investors in China have suffered heavy losses on the stock markets in a drastic market fall lasting for the past four years.

The fall was triggered by the plan made public by the Ministry of Finance in 2001 to sell some of shares of a few State-owned firms to raise capital for the country's social security fund. Theministry soon shelved the plan after the market responded by dumping shares in panic.

The Chinese economy has been growing by an annual average of 9.4 percent in the past 27 years, while the domestic stock markets, far from being an economic barometer, were down nearly by half during the past four years since 2001.

China's top legislature revamped the country's securities law last month in a bid to lay a sound and solid legal foundation for the securities sector, which came into being in 1991.

Source: Xinhua